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Chip stocks are collapsing. Can Nvidia’s earnings save them?

Chip stocks are down 15% since their July peak, and Nvidia’s just kept pace with the S&P 500.

11/15/24 3:01PM

The AI semiconductor trade has become a one-legged stool. And we’re a couple days away from seeing if that leg can support the weight of the entire market.

Chip stocks came under significant pressure on Friday, with the VanEck Semiconductor ETF ending off 3.3%, as Applied Materials led the way down after releasing a disappointing sales forecast. The group looks poised to open in the red again on Monday.

Only one S&P 500 semiconductor company (per the Bloomberg Industry Classification Standard) is up since the VanEck Semiconductor ETF peaked on July 10: Nvidia, which reports earnings after the close on Wednesday. Analysts expect earnings per share to nearly double to $0.74 from $0.40 during the same period last year.

It’s not like the results for this industry group were poor during the most recent reporting period. Far from it: of the 15 semiconductor companies in the S&P 500 that provided quarterly updates so far, all but one (Intel, which missed horribly but still went up after!) posted larger-than-expected profits.

When stock prices stop going up on what should be purportedly good news, that’s a sign a trend may have gotten a little long in the tooth.

Four weeks ago, we posted some potential theories why Nvidia was breaking away from the rest of the pack. Both are still very pertinent:

A couple non-exhaustive, non-mutually exclusive theories on what’s going on here.

1) ASML’s latest quarterly report touched on some softness in chip demand ex-AI. The AI trade could be back to more of a winner-take-all mode, with Nvidia (rightfully) at its epicenter. A point in favor of this: every other time Nvidia’s gained at least 10% in a month since May 2023, the broader semiconductor group has done at least twice as well as it has this month. Earnings reports from the so-called hyperscalers (megacap tech firms investing heavily in AI) come well before Nvidia’s, which will allow for some more proof points for this thesis to be confirmed or rejected.

2) The bump Nvidia has gotten in the past from posting good earnings is getting pulled forward, and that’s raising the bar for how good the numbers actually have to be next to keep those gains going when the report actually lands. Some backing for this: out of the last six earnings reports, the two in which Nvidia did the best compared to semis heading into the announcement (8/23/2023 and 8/23/2024) saw a pretty lackluster relative performance thereafter.

I’d only update this by adding that earnings reports from the hyperscalers were quite solid, in terms of the read-through for Nvidia going forward, and Applied Materials’ sales outlook is another piece of evidence that demand for semis — ex-AI — isn’t running too hot.

And, to re-up this chart, when Nvidia does very, very well compared to its peers heading into an earnings report, it’s tended to do not as well thereafter.

So, the stakes are extremely high next week for the market at large, and in particular for the retail traders who’ve been bidding up Nvidia while the rest of the space falters.

Luke Kawa2h

The neoclouds are shooting back up into the stratosphere

Investors’ faith in tech CEOs’ pursuit of digital God has seemingly been restored for now, sparking an intense rally in the speculative AI players that had been in full-on meltdown mode over concerns that the boom had passed its best-before date.

The data center companies colloquially known as the “neoclouds” — CoreWeave, Nebius, IREN, and Cipher Mining — are up more than double digits over the past two sessions, as of 10:40 a.m. ET.

The past 48 hours have brought a steady drumbeat of positive news for the AI theme.

CoreWeave received a vote of confidence from Wall Street as Citi resumed coverage with a buy rating and price target of $135. Oracle, the epicenter of AI credit concerns, has seen a reversal in its fortunes as it nears an acquisition of TikTok’s US operations. And OpenAI’s fundraising efforts appear be going so well that its reported valuation has gone up in back-to-back days.

Before that, Micron’s earnings reaffirmed the intense demand for AI compute, which continues to outstrip supply — a positive sign for the neoclouds. The macro backdrop is also turning perhaps a bit more in favor of lower interest rates, as CPI inflation came in well below expectations.

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Max Knoblauch3h

Lyft sinks as Wedbush downgrades the stock and warns about robotaxi disruption risk

Shares of Lyft are down about 4% on Friday morning after the ride-hailer was downgraded by Wedbush to “underperform” from “neutral.” Lyft’s rival Uber also ticked down in early trading.

According to a note published Friday by Wedbush analyst Scott Devitt, the market is underestimating the negative impact that autonomous vehicles and robotaxi services will have on companies like Lyft and Uber. Devitt writes that Lyft is more at risk of these downsides than Uber due to its “exposure to the US ridesharing market and undiversified offering mix.” Along with the downgrade, Wedbush lowered its price target for Lyft to $16 from $20.

While the complex robotaxi market is still in early phases, the coming year could be a big one — and that could be rough for the ride-hailers. Per Wedbush, Alphabet’s $100 billion robotaxi biz Waymo is set to launch operations in 20 cities, and Tesla appears to be making strides.

Devitt writes: “As Waymo moves past its 'training wheels' phase of development, we expect more distribution via Waymo One and less via [third-party] integration. 2026 could prove to be a painful year for ridesharing, if true.”

Hyunsoo Rim7h

Nike plunges on weak guidance as China sales slide and tariffs bite

Nike fell around 10% in pre-market trading Friday after the sportswear brand issued lower-than-expected Q3 guidance, despite beating Wall Street estimates on both earnings and revenue for the latest quarter just finished (Q2).

Sales rose 1% year on year to $12.4 billion for the quarter ended November 30, beating the $12.2 billion estimate compiled by LSEG, while adjusted earnings per share of $0.53 also topped the $0.38 estimate — aided by a 9% sales increase in North America, which helped offset a 17% decline in China.

However, for the quarter starting December 1, Nike expects revenues to be "down low single digits" with only "modest growth" in North America, while weakness in China and the company’s Converse brand is expected to persist, CFO Matthew Friend said on the earnings call. The company’s gross margin is also expected to fall by around 175-225 basis points, due to higher costs tied to new tariffs, he added.

After a years-long pivot towards a more direct relationship with customers, Nike’s D2C strategy is stumbling, with a 14% drop in sales for “NIKE Brand Digital.” Its Converse brand was another sore spot, posting a 30% sales drop in Q2, following a 27% decline in Q1.

China also remains a key pressure point, with sales in the region dropping 17% year-on-year, as CEO Elliott Hill — now a little over a year into his turnaround plan — said its recovery is "not happening at the level or the pace we need to drive wider change." Still, he added that the company is now "in the middle innings" of its comeback.

With this morning's slump, Nike shares are down down roughly 23% year-to-date.

Luke Kawa15h

Oracle soars after TikTok signs agreement to sell its US operations to consortium that includes the cloud computing giant

Oracle is up 5.5% in premarket trading on Friday following yesterday’s news that TikTok owner ByteDance signed contracts with three major investors who are leading a joint venture to take over the short-form video app’s US operations, per a widely-cited company memo from TikTok CEO Shou Zi Chew.

The trio of parties in that consortium are the cloud computing company, private equity firm Silver Lake, and MGX, a tech investment company backed by Abu Dhabi.

Per reports, the structure of the deal is roughly aligned with what was outlined in September, which valued TikTok’s US operations at about $14 billion. Relative to some less-popular peers, that seems like a pretty low price tag, so picking up doomscrolling on a discount (or if you prefer, short-term video browsing on a budget) looks to be a worthy catalyst for the bump in the beaten-down hyperscaler’s shares. And that’s even before mentioning the potential for Oracle’s cloud business to enhance its preexisting relationship with TikTok.